India’s telecom regulator proposes quota for local equipment

India’s telecom regulator wants preference for local equipment makers in procurement by operators

Service providers would have to source more gear locally

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The Telecom Regulatory Authority of India (TRAI) wants to compel telecommunications service providers to purchase more equipment made locally in the country.

Under new rules proposed by TRAI this week, locally manufactured products from both Indian and foreign manufacturers will have preference in telecom equipment purchases by both the government, and government-owned and private sector telecom service providers.

Domestic procurement will have to account for 30 percent of equipment purchases in the year ended March 31, 2013, increasing to 80 percent by the year ended March 31, 2020, TRAI said.

Although there are local factories that have been set up by multinational equipment companies, most of the equipment purchased by telecom operators is imported, according to TRAI. Domestically made products accounted for about 12 to 13 percent of the procurement of telecom equipment in the year to March 31, 2010. Products made by Indian companies garnered only about a fourth of that share.

Previous attempts by India to insist on local manufacture in various electronics sectors often led to companies importing equipment in a semi-assembled condition, and later bolting the equipment together in the country.

TRAI has also proposed rebates on telecom license fees to encourage purchase of locally made equipment. Operators that do not meet the stipulated requirement of local purchase of equipment will have to pay a percentage of the shortfall into a telecom research fund or a telecom equipment manufacturing fund.

The manufacture of products locally will also have to progressively include more local raw materials and intellectual property, taking the local value addition in manufacture to 65 percent by 2020, TRAI said. Locally made products that do not meet the value addition criteria will form a common category with imported products, it added.

TRAI only has the authority to make recommendations to the Indian government, which will take a decision.

A number of multinational equipment companies including Nokia Siemens Networks and Ericsson already manufacture some equipment in India. Nokia Siemens Networks said last year that it had started manufacturing equipment for 3G networks at its factory in Chennai in south India, ahead of 3G rollouts by mobile operators. The company also exports products made at its India facility.

Chinese equipment maker, Huawei Technologies, said earlier this year it plans to make some of its products in India. The company has a research and development center in Bangalore. A spokesman said on Thursday that the company could not comment on the TRAI proposals as it is still studying them.

India’s telecom network has grown from 5.07 million connections in 1991 to a subscriber base of 826.25 million at the end of February this year.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is [email protected]